Fictions of Income Tax
25 Pages Posted: 15 May 2010 Last revised: 9 Apr 2015
Date Written: 2011
We cannot have an income tax without a concept of income. For a number of reasons, our concept of income must be artificial. A principal reason is that income tax law generally taxes the results of legal transactions rather than their underlying economic substance, which causes a dislocation between tax law, on one hand; and business profits and other targets of tax law; on the other. In order to make income tax work at all, the law must make a number of assumptions that are not in fact correct, assumptions as to both the factual and the legal nature of the taxpayer’s income. Particular reasons for the dislocation between income tax law and economic profits are, inter alia, that the law taxes the legal substance of transactions rather than the economic substance, the problem of place, and the problem of time. The author uses the term “ectopia” to identify this dislocation. In this article, the author addresses criticisms made of the ectopia thesis, namely, that accountancy rules are similar in character to income tax rules, that more detailed legislation could cure these ills, and, especially, that the law is well used to fictions.
Keywords: Income Tax, Taxation (Beneficiary Income of Minors, Service-Related Payments and Remedial Matters) Act 2001, Trust Law, Tax Avoidance, Ectopia, Fictions, Jurisdiction, Timing, Dislocation
JEL Classification: K34
Suggested Citation: Suggested Citation